Ursodeoxycholic acid (ursodiol) is a non-toxic, hydrophilic bile acid used to treat predominantly cholestatic liver disorders. Better understanding of the cellular and molecular mechanisms of action of ursodeoxycholic acid has helped to elucidate its cytoprotective, anti-apoptotic, immunomodulatory and choleretic effects. Ursodeoxycholic acid prolongs survival in primary biliary cirrhosis and it improves biochemical parameters of cholestasis in various other cholestatic disorders including primary sclerosing cholangitis, intrahepatic cholestasis of pregnancy, cystic fibrosis and total parenteral nutrition-induced cholestasis. However, a positive effect on survival remains to be established in these diseases. Ursodeoxycholic acid is of unproven efficacy in non-cholestatic disorders such as acute rejection after liver transplantation, non-alcoholic steatohepatitis, alcoholic liver disease and chronic viral hepatitis. This review outlines the present knowledge of the modes of action of ursodeoxycholic acid, and presents data from clinical trials on its use in chronic liver diseases.